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German Chain Hertie Files for Bankruptcy

The struggling German department store chain, Hertie, filed for bankruptcy today, underscoring weaknesses in the German retail sector.

BERLIN — Hertie, the struggling German department store chain, filed for bankruptcy Thursday, underscoring weaknesses in the German retail sector.

The 73-door, second-tier group, owned by the British investment firms Dawnay Day (85 percent) and Hilco (15 percent) but based in Essen, Germany, has been operating at a loss. The stores, which are 21,500 square feet to 86,000 square feet, are located in smaller urban neighborhoods and employ 4,100 people.

Founded in 1895, Hertie was taken over by KarstadtQuelle  AG in 1994. As part of Karstadt’s reorganization, the smaller and noncore stores were sold to the British investors in September 2005.

Industry sources estimate Hertie faces losses this year of about 30 million euros, or $45 million at current exchange rates.

Hertie said it plans further restructuring under Germany’s bankruptcy laws. Managing board member Eric van Heuven said the goal is to continue operations. Industry observers, however, said the chain’s chances of survival are slim.

The bankruptcy is the latest blow to retailing in Germany. The 39-unit specialty chain Wehmeyer also filed for bankruptcy in July. In addition, Germany’s two main department store groups, the 128-door Karstadt department store group and 141-unit Galeria Kaufhof, are in flux.

Kaufhof is for sale (as is the Metro Group’s Adler specialty store chain) and, in the first half of 2008, saw sales decline 2 percent. Losses narrowed to 50 million euros, or $78.2 million, compared with a loss of 52 million euros, or $81.4 million, a year earlier. All dollar figures are converted from the euro at an average exchange rate for the period.

Karstadt’s second-quarter sales for fiscal 2007-’08 ending in March were up 0.7 percent and quarterly losses showed slight improvement, reaching 22.9 million euros, or $34.3 million, compared with 26.5 million euros, or $39.7 million, the previous year. However, the department store division had a top management shake-up in July, when chief Peter Wolf was replaced by former Kaufhof board member Stefan Herzberg.